The stock market moved higher on Friday after the August jobs report came in slightly lower than expected and dropped significantly from last month, which helped ease investor concerns that a stronger labor market would result in more aggressive interest rate hikes from the Federal Reserve.
The Dow Jones Industrial Average was up 0.6%, around 200 points, while the S&P 500 gained 0.6% and the tech-heavy Nasdaq Composite 0.4%.
Stocks opened higher after the U.S. economy added 315,000 jobs in August—slightly under the 318,000 expected by analysts and far lower than the 526,000 new jobs added in July, according to data released by the Labor Department on Friday.
Though unemployment ticked up to 3.7% from 3.5%, the jobs market has remained strong despite slowing economic growth this year, which Fed officials have pointed to as evidence that the economy can withstand more aggressive rate hikes without falling into a recession.
The labor market is “less tight than it was in July” and “moving in the right direction for policymakers,” meaning that overall this is a “good report for those concerned about inflationary impacts of a tight labor market,” says Jeffrey Roach, chief economist for LPL Financial.
The solid jobs data helped markets pare back some losses for the week, as stocks have recently been dragged lower by hawkish comments from Fed officials that the central bank will continue to raise interest rates well into next year and it would take some time before a reversal in monetary policy.
Some Wall Street experts now warn that the prospect of the Fed raising rates “higher for longer” could well spook markets into retesting their June lows, especially as September is historically the market’s worst month on record.
“The market is in a bad place in general – rising interest rates and too high inflation – but this is actually pretty good economic news and should be well received,” says Chris Zaccarelli, chief investment officer for Independent Advisor Alliance. “The Fed is somewhat on autopilot for the near future – they will be hiking rates no matter what – but to the extent that the economic data comes in like this, it could take some pressure off of them in future meetings.”
Stocks finished higher on Thursday to kick off the month of September, which has historically been a rough one for markets. Still, all three major averages are set to post their third negative week in a row, continuing a slump that began in mid-August. Optimism about a potential Fed pivot, which was driving the rally earlier this summer, has faded—especially after comments from Fed chair Jerome Powell last week, who reiterated aggressive rate hikes for the foreseeable future.